State Farm Discriminates Against Black Homeowners When Processing Insurance Claims, Class Action Alleges

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A proposed class action alleges State Farm Fire & Casualty Company subjects claims filed by Black homeowners insurance policyholders in certain states to greater suspicion than those filed by white policyholders.

According to the 26-page case, the automated processing methods used by State Farm to screen out potentially fraudulent claims, in particular in the Midwest, are algorithmically biased as they disproportionately and unjustifiably flag claims submitted by Black homeowners for additional scrutiny. As a result,  Black homeowners experience more delays and extra administrative hurdles during the claims process than white homeowners, and overall “receive a less valuable product than white State Farm policyholders,” the filing argues.

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“Algorithmic decision-making and data analytics are not, and should not be assumed to be, race nor gender neutral,” the case reads. “Too often, they reinforce and even exacerbate historical and existing discrimination.”

Per the complaint, State Farm uses automated tools provided by third-party vendors Duck Creek Technologies and FRISS to process each claim it receives. Notably, FRISS uses an AI text mining tool to analyze demographic data about the neighborhood in which a claim is filed, such as “the degree of urbanization,” the case says. State Farm uses this information to disproportionately assign higher risk/suspicion scores to Black claimants, the suit asserts.

Indeed, State Farm collects and analyzes about its policyholders “vast troves” of publicly available information that can be proxies for race, such as physical appearance, genetics, voice, geolocation, social media presence and browser search history, the case explains. Additionally, the suit claims the company’s algorithms look at historical housing and claims data that are “infected with racial bias.” 

The lawsuit cites a 2021 YouGov poll which surveyed around 800 white or Black homeowners with State Farm homeowners insurance policies across the Midwest. Per the suit, the poll found statistically significant racial disparities in State Farm’s homeowners insurance claim submission and adjudication process. The poll also found that white policyholders were almost a third more likely than Black homeowners to have their claim processed expeditiously, the case relays.

Compared to white policyholders, Black policyholders were 39 percent more likely to have to submit extra paperwork to justify their claims, and about 20 percent more likely to require three or more interactions with State Farm before reaching a claim resolution, the filing adds.

The plaintiff, an Illinois resident, says that she filed a homeowners insurance claim with State Farm after hail damaged her roof in June 2021. More than a month after she filed the claim, State Farm sent an adjuster who declined to inspect the outside of the roof and provided only an estimate for the internal damage, the case says. The complaint explains that the woman had to place several more phone calls and wait four months after she first contacted State Farm before the insurer granted her claim, but only for the cost of internal repairs.

The plaintiff estimates that she has had 20 to 30 conversations with State Farm concerning this claim, and during this delay, she has experienced water damage to her kitchen and bathrooms. The plaintiff, to date, still has not resolved her claim with State Farm regarding the damage to the outside of her roof, the filing says.

“Black homeowners thus experience greater inconvenience as well as detrimental impact to the value of their home and their quality of life as necessary repairs remain unaddressed for months on end,” the complaint contends. “These delays mean that Black State Farm policyholders receive a less valuable product than white State Farm policyholders.”

The suit charges that the discriminatory effects of State Farm’s claims processing methods violate the federal Fair Housing Act.

Given that State Farm has access to data that would demonstrate how race affects its algorithms’ outputs, the company either does not review its claim processing methods for bias or has refused to use less discriminatory alternatives, the filing alleges.

The lawsuit looks to represent the following class:

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